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The U.S. Federal Reserve's plan to scrutinize how bankers are paid would touch everyone from CEOs to loan officers at literally thousands of financial institutions across the United States.

But many experts aren't convinced this week's co-ordinated attack by the Fed and the Obama administration on “flawed” pay practices gets at what's really wrong with Wall Street.

The Fed's pay plan coincides with a move to slash the pay of top executives at seven companies that still owe the U.S. government billions in bailout cash – all rolled out in a series of leaks, speeches and network television interviews.

In his harshest criticism yet of Wall Street pay, Fed chief Ben Bernanke said “flawed compensation practices” helped trigger the financial crisis. “Compensation, not only at the top but throughout a banking organization, should appropriately link pay to performance and provide sound incentives,” Mr. Bernanke said Friday in a speech in Chatham, Mass.

“In particular, compensation plans that encourage, even inadvertently, excessive risk-taking can pose a threat to safety and soundness.”

Putting a spotlight on executive pay is relatively easy.

Changing the way banks do business is far trickier, said former federal banking official Joseph Mason, now an associate finance professor at Louisiana State University.

“The changes to bank CEO pay are an attempt to move beyond the crisis, to make it seem like you're really doing something, without going after the fundamental problem of bank performance, what banks do and what caused the crisis,” Prof. Mason said.

Major banks and lenders ran into trouble over the last couple years due to risky lending, bad investments and inadequate capital levels. Changing compensation rules alone doesn't prevent banks from engaging in risky behaviour as they strive to increase profits and reward shareholders. New laws aimed at regulating those activities continue to face political resistance and could be significantly watered down.

The Obama administration is in a deep rut as it looks toward next year's midterm congressional elections, Prof. Mason said. Its signature health care and climate change reforms are in trouble, the economy is still fragile and its plan to overhaul financial regulation is running into stiff headwinds, both inside and outside government.

In that environment, there's a strong incentive to pander to widespread public outrage over bloated pay on Wall Street, acknowledged Gary Townsend, a former U.S. bank regulator and now chief executive officer of Hill Townsend Capital in Chevy Chase, Md. “This is largely political eyewash,” Mr. Townsend said. He pointed out that the Fed has long had the power to crack down on bank compensation policies under its authority to take action against banks that engage in “unsafe or unsound practices.”

Under the proposed rule change unveiled this week, the Fed said it would review and compare the compensation practices of all the institutions it supervises – from large bank holding companies to state member banks and foreign institutions operating in the U.S.

The Fed didn't explicitly say what risky behaviour it would target. But starting next year, the 28 large bank holding companies, including Goldman Sachs and Citigroup, will have to show the Fed how their pay policies jibe with their risk management policies.

Bank regulators would have the power to veto policies they don't like. Meanwhile, White House pay czar Kenneth Feinberg wants Corporate America to give its top executives less cash and more restricted stock to ensure they're committed for the long haul.

Cornelius Hurley, a former Fed lawyer who now heads the Morin Center on banking and financial law at Boston University's law school, agreed that decision-makers are playing to the anger on Main Street about executive pay, lavish perks and the bailouts.

At the same time, he acknowledged that compensation policies are problematic.

Bank management picks its own board of directors, who then hire compensation consultants, whose mandate is to sanction compensation that equals or exceeds the competition, Prof. Hurley explained.

“There's clubbiness, with a sprinkling of holy water by consultants, and you end up on an escalator that goes nowhere but up,” he said.

But Prof. Hurley said the Fed rules must be applied in conjunction with legislation the Obama administration is pushing to give shareholders greater say over executive pay at all public companies. “The two go hand-in-hand,” he said. “Give shareholders the right to have a say on pay. Right now they don't have that.”

Some bank officials warned the crackdown on pay would push the best talent to leave banks and go work offshore or at unregulated institutions, such as hedge funds. Bank of America, whose 25 highest-paid executives were hit with steep pay cuts this week, said in a statement that its competitors are already “exploiting this situation,” luring away key employees with twice as much or more than what it's paying.